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of <h1>Co-owners' service tax liability on rental income: individual assessment with separate slab exemptions permitted, not collective pooling</h1> Whether co-owners of undivided commercial property must be assessed collectively or individually for service tax on rental receipts is examined by ... Liability of co-owners to pay service tax individually after availing the slab exemption or are collectively liable to pay service tax after pooling the entire consideration received as rent - the co-owners of an undivided commercial property given out on lease would collectively constitute an “association or body of individuals” (from 01.07.2012) or “association of persons” (from 01.07.2012)? - HELD THAT:- It is found that the period of demand spans over the pre and post negative period. Briefly put, prior to the negative list era Sub-Clause (zzzz) of Section 65(105) of Finance Act, 1994, defined the taxable service of ‘Renting of Immovable Property service’ to mean any service provided or to be provided to any person, by any other person, in relation to renting of immovable property for use in the course of furtherance of business or commerce. Since the term ‘person’ was not defined in the Finance act, the definition of “person” as found in Section 3(42) of the General Clauses Act, 1897, was adopted for legal purposes. Joint ownership or co-ownership of property plays a critical role in defining how property is held, managed, and transferred between multiple individuals in India. It can arise in various social contexts, such as inheritance, purchase of property by more than one person say husband and wife, or as part of family arrangements or with a view to resolving disputes etc. These peculiar arrangements are generally made in the social context of maintaining peace and security of the family, entails rights, responsibilities, and individual interests of each co-owner in the property, and tax laws must be interpreted in this context. Once a person owns property on his own strength then his act of renting out the property has to be due to his self-interest and not for the collective or common interest of the co-owners, unless there is something to suggest otherwise. Thus, the individual appellants are entitled to be assessed separately for Service Tax in respect of their respective shares of rental income from the property. Thus, the appellants, as co-owners, cannot be regarded as an association of persons for the purpose of joint assessment of their total rental income under Service Tax. Each appellant is entitled to individual assessment and may avail the applicable slab exemption on an individual basis - the impugned orders are set aside and appeals are allowed. Issues: Whether co-owners of an undivided commercial property given on lease constitute an 'association of persons' / 'association or body of individuals' such that they must be assessed collectively for Service Tax on the pooled rent, or whether each co-owner is entitled to individual assessment and to claim slab/threshold exemption on his respective share.Analysis: The statutory definitions adopt the term 'person' to include an association of persons, but neither the Finance Act nor related provisions define what constitutes an 'association of persons'. Precedent establishes that an association of persons requires two or more individuals to voluntarily join for a common purpose, particularly to produce income, and that volition and joint management are essential ingredients. Mere joint or undivided ownership, or execution of a single lease deed, does not by itself establish an association of persons where individual undivided shares are ascertainable, receipts are credited separately, and there is no joint management or common purpose demonstrated. The facts show identifiable UDS shares, separate receipt of rent by each co-owner, absence of pooled receipts or collective management, and no evidence of a conscious agreement to operate as a joint economic unit. Prior tribunal and High Court decisions apply the same tests and support individual assessment in such circumstances.Conclusion: Co-owners of the undivided commercial properties are not an 'association of persons' for Service Tax assessment; each co-owner is entitled to be assessed individually in respect of his share of rental income and may avail applicable slab/threshold exemption on an individual basis. The impugned orders are set aside and the appeals are allowed.Ratio Decidendi: Where co-ownership lacks voluntary uniting for a common economic purpose and there is no joint management or pooled receipts, co-owners of undivided property cannot be treated as an 'association of persons' and must be assessed individually for renting-of-immovable-property service.
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